To our friends:
As I sat down to write this, I promised myself that I would make every effort to avoid taking a partisan perspective or participating a meaningless blame game. None of that is necessary, especially now, because, if anything, such rancor only serves to distract from the importance of this moment. Rather, today I wanted to speak to you openly, out of concern, as a fellow American.
This morning, I had an unusual conversation with an official from the Farm Service Agency of the United States Department of Agriculture. I called him with questions about a matter pertaining to one of my clients, and something that he said during our discussion really struck me. The FSA has long been a program designed to assist farmers, ranchers, and the like with access to sorely-needed financing, which is then used to raise the crops and animals that feed all of us. There have rarely been problems with the program dating back to the 1930’s –that is, until now. Today, FSA has virtually exhausted its budget, which has been smaller than usual because the entire federal government has had to operate under a series of continuing resolutions, en lieu of annual budgets, and the next round of funding for some FSA financing products is neither foreseeable nor is it for certain. The FSA official said to me, “Farmers can’t buy any seeds. They can’t buy any feed. They don’t have the money to operate their farms. I honestly have never seen it like this.”
Such candid words from that gentleman compelled me to think. The fiscal debate in Washington, DC, is hurting real people. But this dilemma is not just about a singular AxSA client, a large swathe of undercapitalized farmers, or even all farmers across the country. This dilemma is also not about the current debate over the Fiscal Cliff. In fact, I have come to realize, instead, that this dilemma is about each and every American living today and born tomorrow. This is a dilemma about how this country will operate for years and decades to come.
Today, many of us recognize that we stand at an uncommon moment, and that there is no easy road ahead. But increasingly we are divided on how to go forward. This is not going to work. Today I realized that, if we don’t adopt the willingness to work together, then we will most certainly do more harm than good.
To some, it might seem strange that I would urge anyone to consider cooperation and compromise, when, prior to now, I have seemed so ardently partisan. But perhaps at no other significant time in my life than this day have I come to realize what is at stake if we don’t work together. Indeed, without a spirit of genuine cooperation and an end to bitter partisanship, the troubles facing so many of us could have painful consequences. Consider these coming events:
¤ December 18, 2012, is the last day for any bill to be brought before Congress, before the regular session adjourns on December 21st. If no deal on the Fiscal Cliff is reached by that time, then we will all have to pray that our leaders are willing to work through the Christmas break to formulate some type of agreement.
¤ On January 1, 2013, if no deal on taxes and spending has been reached, the new tax rates and a series of new tax rules go into effect. Among the changes, just to name a few:
---Whereas the current range of tax brackets within which nearly all taxpayers fall is at 10% and 25% (before deductions, credits, etc.), the new range will move upward to 15% and 39.6%.
---The tax rate on long-term capital gains from investments will go from 15% to 20%.
---Dividends will be taxed at a rate of 39.6%.
---While the standard deduction for a married couple is twice that of a single individual, should no deal be completed by the end of the year, then that deduction will be reduced to just roughly 167% of hat for a single individual.
---The 2% Social Security payroll tax cut will summarily expire, as well as a host of other tax cuts for businesses enacted since the President’s first term.
---A temporary increase to the Earned Income Tax Credit for families with three or more children will expire, along with the temporary increase in the income eligibility requirement.
---There will be an end to increased deduction for student-loan interest, and there will no longer be an exemption for mortgage-debt forgiveness.
---Today all taxpayers are able to claim the full amounts of a $3,800 exemption for themselves and their dependents. Should no deal be reached, however, then the personal phaseout rule will return, essentially reducing or eliminating these deductions for higher-income taxpayers, by cutting 2% for as much as every $2,500 made a single taxpayer in excess of the Adjusted Gross Income threshold.
---Some who itemize on a Schedule A will also see changes, as total itemized deductions will be cut by 3% of the amounts that the adjusted gross income of those taxpayers exceed the annual threshold.
¤ On January 2, 2013, if a deal is not reached in Washington, then significantly more than $100 billion in spending cuts will take effect. The cuts will be sweeping, impacting every area of federal funding including defense and other domestic priorities like agriculture-assistance programs. In these cuts, extended unemployment benefits for millions of Americans will be eliminated, totaling roughly $35 billion dollars, and there will be a reduction to Medicare doctor rates to the tune of $15 billion.
¤ By February of 2013, if not sooner, the national debt will reach its limit of $16.394 trillion, and Congressional leaders and the White House will again have to come together on a decision to raise the ceiling. In no way different from the melodrama of 2011, any unwillingness to raise the ceiling will threaten the nation with the prospects of defaulting on its obligations.
¤ On March 27, 2013, the continuing resolution that is funding the federal government will expire. If a new federal budget is not in placed by that time, all parties again will have to come together to pass another resolution, lest the federal government will have to shut down all nonessential functions.
¤ By August 1, 2013, the White House and Congress will have to visit the subject of entitlement spending and the state of the U.S. tax code, in order to determine how the federal government will sustain such programs. If it cannot reach a resolution by this self-imposed deadline, then, according to projections from the Congressional Budget Office, entitlement spending will equal and surpass tax revenue by 2025.
The fiscal challenges that we face are considerable, and it might seem prudent to ignore them, to panic out of fear, or to assume a position in this heated and highly partisan battle of ideals. But I recognize now that none of those approaches will help our great republic. The time for ignorance, fear, and recrimination is over. It is time for us to get to work. And so, I have resolved to take a different view; I have solved to rise above, and I am urging so many of you to do the same.
This nation can meet the coming tests to its integrity, head on, and it can be put on a solid fiscal trajectory. But achieving such a feat, as strange as it might sound, has to start with each of us, the people. We must be willing to put aside any thought of our own political views as absolute, and we must be willing commune at the table of those with whom we have often not agreed. And from this discourse we must seek common ground. We must work together, understanding that no one of us will get everything that we want, but through sincere compromise, each of us will be better off. When we the people do such a thing, then it will be easier for our leaders in Washington to follow suit; it will enable them to cross party lines, without fear of reprisal from voters, so that they can keep stable this nation, resolve our fiscal and debt challenges, and again resume the work of growing our economy.
Please consider these words thoroughly. We must do this.
Gary C. Harrell
Axiom Strategy Advisors, LLC